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Tax-Free Wealth Strategies with Tom Wheelwright

We are talking about tax-free wealth. You’ve got to pay attention to this because it's not how much you make, it's how much you keep and taxes elude no one.

We're talking with Tom Wheelwright who is a Rich Dad Advisor, which means he is top-notch. We've had Andy Tanner on the show. We've had Robert Kiyosaki himself. If you're getting to know them, he is the bestselling author behind multiple companies that specialize in wealth and tax strategy. He's also a leading expert and a published author on partnerships, corporation tax strategies, and a well-known platform speaker and wealth education innovator.

Tom gives us some incredible wisdom, a lot of things your current advisor, your current team member might not be doing.

The best thing about this episode is that Tom takes something that is incredibly complex. Maybe you’ll even say, “I'm not sure that I want to read a whole episode about taxes.” He makes it simple. He makes it fun. He makes it exciting.

This episode potentially could put more money back in your pocket if you will communicate with the advisor that you're working with and share some of the things that you learn on this episode. We cover the gamut. We talk about how you could make small tweaks that can help you reduce your taxes anywhere from 10% to 40% in as little as a few months.

I know that sounds crazy to some of you. I know that may sound big. If that intrigues you even a little iota, you owe it to yourself to read this episode.

Dustin
This is Tom Wheelwright, bestselling author of Tax-Free Wealth.
Tom, you have a doctor that comes to you with $750,000 tax bill. He already paid that, that’s because he hadn’t met you. You would think this is a good thing because you're making a lot of money. Most people would think, “If you’ve got a bill that high, that means you're making some good money.” However, you're not content with that. You don't believe that because you pay a lot of taxes, this is a good thing. He works with you. You drop him down to $238,000 in taxes, which is a huge win. However, you're still not content. You whittle that away. You get that down to $52,000 in taxes and you're still not content. Your idea as you mentioned is tax-free wealth. How are you able to whittle down someone's bill like this? Do you ever get that hate mail or stuff like that like, “If you're American, you should be paying taxes so that you can contribute to the roads and society?” What's the whole backstory to this?
Tom
The worst advice I ever hear and I hear all the time somebody goes, “I was told that if I want to pay less tax, I need to make less money.” That is seriously the dumbest thing I ever hear and I hear it all the time. It is shocking to me. Why would you want to make less money? The reality is the tax law is a series of incentives. Like it or not, it is. You cannot like it, not pay attention and pay a lot of tax. You're going to go, “What incentive is there for me?” Doctors are tough because doctors don’t have a lot of incentives. We have to change the nature of how this doctor made his money and what he was investing in. The first thing we did, I always look at the previous year's tax returns. Oddly enough we found a mistake, which we don't find often. He'd been taxed a certain way on a part of his income which was completely incorrect. He was already a minor real estate investor. What he learned was that professional investors get all the tax breaks.
We developed a strategy for him to build his wealth and reduce taxes all at the same time. The faster you build wealth, the fewer taxes you pay because the more money you earn, the more taxes you pay. The more assets you acquire, the fewer taxes you pay. If you want to pay less tax, acquire more assets. That's not me talking. That's the Internal Revenue Code. That's in every single country. The governments work the same way. They're looking at, “There are certain things we want to encourage. Certain activities whether it's an investment in housing, whether it's an investment in business, whether it's creating jobs.” These are all things the government wants to do, whether it's controlling the climate like research and development. I travel all over the world. Every single country I’ve ever been to have a massive research and development tax benefit. The US has the worst of any country. For example in South Africa, if you spend $100, you get to deduct $150. That's fairly common that tax benefit.
What the government's saying in South Africa is, “We'd like you to do your research and development here in South Africa. We don't want you to do it in China. We don't want you to do it in the US. We don't want to export our inventors. We don't want to export our research and development. We want to do it here and we will pay you to do it.”The reality is the government’s your partner, like it or not. You can be the partner that pays 50% or 60% tax. You can be the partner who pays 0% tax. You get to choose. It's not unfair. It's not one person gets to choose and the other person doesn't. We have what's called equal protection under the law in the US and the Constitution. You can't have laws apply differently to different people. What you can have are different laws that apply to different people. The same one has to apply equally to everybody. What that means is if you say, “The tax laws are made for the rich.” Why don't you start behaving like the rich and get the tax benefits? It's a function of changing your behavior.
Dustin
Why are people stymied by this? There are 6,000 pages of new tax codes added. I don't even know how big the book is or if it's even in one single book anymore. With all that, people seemed to be fooled by this. They seem to be paying more than they should be doing. What's the problem here?
Tom
Fundamentally, it's financial education. They've grown up without any financial education. Schools don't teach financial education because look who's teaching it. They don't understand it. The teachers don't understand it. Even if you take a business class in high school, what are you going to get? How to balance a checkbook? Who cares? That's what software is for is to balance my checkbook. I don't need to know how to do that. You have this complete lack of financial education. People are scared to death of the IRS. There's a lot of fear mongering when it comes to taxes. People are uncomfortable with numbers and they're uncomfortable with complexity. There's nothing that's a bigger set of complex numbers than the tax law. It's why I love the tax law because when I was a kid, I always loved numbers. Numbers were super easy for me. I took a business law class in high school. In college, I’m going, “Do I go to law school?” Then I decided, “I do not like lawyers. I don't want to spend my life with lawyers.” I'm talking with my tax professor, I said, “What do I do, Professor Haney?” He goes, “If you want to do tax, what you need to do is get a Master's of Accounting in Tax.” I said, “Where do I go?” He says, “The best school in the world is the University of Texas, go down there.” That's what I did.
The thing is that taxes don't have to be complex. The details are complex. That's what accountants are for. The concepts are simple. If you want to know what your government wants you to do, look at the tax law. The tax law itself is over 6,000 pages. In Great Britain, it’s over 12,000. We’re half as good as Great Britain. Canada is half of us. It’s much simpler in Canada. The reality is that most of the tax law is this instruction guide on how to reduce your taxes. You have one line that says, “All income is taxed unless we say it isn't.” Another line that says, “Nothing's deductibles unless we say it is.” I teach CPAs on a regular basis. We came up with a name for it. Why are you, “Complexifying,” things? That’s our word we made up. You’re complexifying it. Why don't you simplify it instead?
You have professional advisors, whether they're tax advisors, legal advisors and financial advisors. They have this theory that goes like, “I’ve spent all my life studying my subject. If I tell you what I know, you won't need me anymore.” I call that the Black Box Theory of Advice. I’ve got this black box. I need to keep it black. I can't let you in. We have a different philosophy. My philosophy is if I teach you what I know. Let me ask. Are you going to be more successful or less successful? More successful. If you're more successful, you're going to make more money or less money? You’re going to make more money. If you make more money, your life is going to tend to get more complex.
You're going to have all these different companies and all these different investments. That means more work for me. It's totally selfish. I believe that the more successful clients are, the more they are going to use me and need me. They're going to refer more people to me as well. Mostly, it’s I want them to be successful. If I can take a doctor, by the way, they’re the hardest person in the world to reduce their taxes. Part of it is because a lot of doctors frankly think they know everything, they don't need anybody else. My wife is a CPA. She has her own CPA firm. She will not take a doctor on as a client. Doctors are tough because the law doesn't favor them. The law doesn't favor professionals and it doesn't favor employees. It favors business owners and investors.
This doctor, to his credit, is the exception that proves the rule. What he does is every single piece of advice I’ve ever given, he goes the extra mile with it. He's taking trips. This guy works 60 hours a week. He's taking trips to learn about real estate investing and learn about oil and gas. He's meeting all these people. He goes on this cruise. He's implementing every single thing I tell him to do. He's doing it over and over again. When I looked at his tax projection this year and I saw how low his taxes were going to be, I’m like, “I had no idea you'd done all this.” We talk on a regular basis and I still didn't know he'd done all this. We're going to get him to tax-free quickly.
Dustin
You have this amazing ability to take a somewhat complicated, some may say a boring subject. You understand the power of it. I want to get into that. I want to show people what you know about tax-free wealth and how to find the right team. Before we do, I want to go back a little bit. You're uncommon. You're not the typical CPA. You are not the typical guy. I’ve got to think that goes back to childhood. I’ve got an opportunity to get to know you. You grew up in family biz. How do you think that shaped your life? Let the WealthFit Nation know what that story is.
Tom
I was fortunate. My dad and his brother, when they were young, they wanted to start a business. My dad loved photography and printing. My uncle was a musician. He'd done his Doctoral work on how to print music a different way. Their father, my grandfather, gave them the seed money to start this business. My uncle was a better businessman than my dad was. My dad was more artistic. They worked well together. My dad managed the plant and my uncle ran the business. They were partners for 30 odd years. They built a fairly sizable printing company that did a lot for color work. Back then, that was a big deal. Now, you wouldn’t even have printers like them anymore. They were lithographers. It was an art. In my family, there are six of us. I'm the youngest of six. All of us worked in the business. I had a brother who worked in the press room. I had another brother who worked in the art room. My sister worked in the art room. Shockingly, I worked in the accounting department and my mother was the controller. My mother and I had a special relationship. We were friends. My mother was never motherly. She's not your typical mother. She was brilliant. She graduated from high school when she was fifteen. She started high school as a twelve-year-old. She accelerated through school. My dad also graduated from high school at fifteen. They're smart people and focused on education.
My mother was a voracious reader. We’re friends. She was a tennis player. She taught me how to play tennis. We play tennis together. After school, I would go down and I'd fill out invoices and I do the accounts payable and the accounts receivable. All of us had a different feel for the business. My brothers and I all went into business of some sort. My oldest brother was a Harvard business professor. My next oldest brother wrote the first tutorial for Word. My brother that’s closest in age to me developed the first factory in China that is FDA-approved in making drugs. I'm the runt of the litter. I'm the only one without a PhD. Not only do they have PhDs, but they're rich. Every one of them makes a lot more money than I do. They’ve been successful investors. I remember my oldest brother from Harvard Business School says, “You should look at this little company called Apple. I'm on the board. It's a good company.” He's getting options and investing. He's got all the inside scoop on this company. This little company called Apple because that was many years ago. Apple was small and he was on the board. He was on the board of all these companies that are now mega-giants. Family businesses are great, greater for some than others.
Dustin
You come from an incredible family. You decided you're going to the University of Utah. Did you know that you would come back around to entrepreneurship or did you go a different path?
Tom
I loved school. I was good at it. I'm an A student. I call myself a recovering A student. I had a tax professor at the University of Texas, Sally Jones. She goes, “The best thing about taxes. The more you know, the more you realize you don't know. You're learning every single day.” I loved to learn. I'm a voracious learner. I got the opportunity to go back to the national office of Ernst & Young. I spent a few years back there with the biggest brains in the business and learn at their feet. I learned how to write back there because they’re all attorneys and they ripped me up on my writing. They were without mercy. They pushed. By the third year I was there, I developed pretty good writing skills and they allowed me to write my own stuff. I did a lot of teaching because I’ve always loved to teach. I did stay the employer out. I was a few years with Ernst &Young and another few years with a Fortune 1000 company now. I was several years out of school before I started my business. The only reason I started is that Price Waterhouse fired me. I'm out on the street and I have two young kids and I'm the sole provider. I told my then wife, mother of my children, “I'm going to start my own business.” She said, “Go for it.”I had friends come to me and said, “We thought it was about time.” I didn't know it.
When I got fired by Price Waterhouse, that was the universe saying, “This is not the right place for you.” It was a horrible time, the worst few months of my life. It’s not necessarily their fault, it’s just a bad fit. When they fired me, they released me is what happened. At that point, they gave me a pretty nice severance because they felt guilty about it. I had some time available. I said, “I’ve seen other accountants. I’m at least as smart as they are. If they can do this, I can do this.” I’d kept a couple of clients that I served at Ernst & Young. They let me keep a couple of clients when I left. One of them I did his business and investing taxes, and he had another CPA to do his personal taxes. I went up and I talked to this personal CPA and I’m going, “This guy is not that bright.” Yet he's driving a car that is much newer and much nicer than mine. That's when I'm going, “I can do this.”I had a buddy that came to me and he said, “There's a CPA practice for sale. I will fund it for you because my son made all this money in software and he's got all this extra money. I will lend you the money.”I put up mortgages on my house and everything else I owned right under my oldest child. He forced that issue, but he gave me that opportunity.
Once I had that, I moved into an office. Somebody I'd met while I was scrounging for work offered me an office in his suite for $250 a month. I took it. I got so much work after that because people realized I was serious about being in business. It flourished and within a year I was overwhelmed with work and brought in more people. Within a few years, we had ten. Now we have clients all over the world. It's a little too bad it took me so long. At the same time, I would not have been as good at the tech side of it as I am now had I taken any shortcuts. I was an adjunct professor for fourteen years and so I got that experience. I did state and local taxes which I'd never done before. I was always a real estate guy. I did state and local tax. That was the Fortune 1000 company because they didn't have any income tax at that time, so they had some big losses. It's all good experience. Frankly, I wouldn't trade any of it because it brings us where we are.
Dustin
You're a Rich Dad Advisor. We've had Robert on the show. We're big fans. Andy Tanner
Tom
I have a different story. In 2001, my business had grown so much that I brought on a partner. I'd ended up with three partners. There were four of us. I went through a nasty partnership breakup with this guy. Clients went with the other partners, but all the staff stayed with me. I have all these good staff. I only have half the work. I don't want to fire good staff because it’s hard to find and train good staff. I put that out in the universe and it’s the way I would put it now. It's not what I was thinking then but that's the way I put it. I get this postcard in the mail and it says, “CPA firm for sale.” I called on it and they had this CPA firm in Phoenix that did a lot of consulting. Not a lot of CPA firms do tax consulting. I checked into it. These clients were not only the right clients, but one of them was an old friend of mine. She was able to tell me all the inside scoop on the practice. She was an insurance agent and she'd helped build the practice. She was thrilled that I'd taken over because the accountant I was buying it from let things go. She'd gotten distracted by other business interests. I bought the practice.
I'm looking at the client list and one of the clients is this fellow by name of Robert Kiyosaki. I tell people that I bought Robert. That's what you’re doing. You're buying a client list. That’s what you're paying for. I met Robert through the seller of the accounting firm. It's an amazing story because she decided to go off on her own and then doing a lot of Rich Dad stuff herself. She had been on stage with Robert and then toured with Robert. She decided she was going to do her own thing. She was a star in her own right. She's going to do her own thing. She left a week before they had a three-day event. Robert wasn’t too happy about that. My new business partner and I, we decided we're going to go attend the event. Along with her husband, the three of us attend this event. The first day, Robert's talking about depreciation on real estate. He says, “I'm going to have my other accountant come up and explain depreciation.” Let's put this in perspective. He'd never seen me on stage before. He had no idea I had any experience whatsoever. He didn’t know I knew what I was talking about when it came to depreciation. In my mind, he took this enormous risk.
I’m up there and I start talking about the magic of depreciation. He was like, “This is awesome.” We hit it off and did some stuff together. We had some ins and outs because they brought some other people in to run the company. They brought their own CPA in. About 2008, we got back together because I was taking a course he was doing. He had a new CEO. The new CEO said, “Would you come in and handle our taxes?” I said, “Absolutely,” then he wanted me to be a Rich Dad Advisor. He said, “You have to write a book.” I said, “I can do that,” and so I did. In 2012, I released Tax-Free Wealth. It was on the bestseller list before it was released. It's been number one in its category since it was released in 2012. It's pretty amazing to have a book like that because I had no idea how big of an impact that would have on people. I didn't know anything about Rich Dad Poor Dad. I never read it until I was told, “You should read this book because this guy is one of your new clients.” I go read the book. My buddy had become the CFO for Rich Dad. I get this card about the same time looking by in his practice. I had this card from George and he goes, “I want to let you know I’ve got this new job and it’s CFO at Rich Dad.”
I'm calling George and he's giving me the entire scoop about Rich Dad. I'm calling my other friend who's a client of the CPA firm going, “It was meant to be.”Robert and I have been traveling regularly since about 2012. We travel all over the world together and we typically travel the world once or twice every single year. Robert is a generous guy and he's brilliant. The best teacher I’ve ever seen. He can make things simple. The greatest thing I’ve gotten from him is he’s forced me to simplify it. I make tax laws a lot simpler. Some of that I have to attribute to Robert, it's not that he came up with it. It’s that he pounded on me until I came up with it. We did this a couple of years ago. He had us all do TED Talks. We were riding him, it’s not like we were going to do a TED Talk. He wanted us to do a short twenty-minute talk. I get up and he says, “I want an audience.” We're in their studio. I bring twelve of my staff. This is a Saturday morning and they volunteered to come. They can't wait to see this.
Robert says to me before we start, “Tom, you're brave. You’ve got twelve of your staff here?” I'd put it out and anybody wanted to come could come. I got this all prepared. I spent weeks and weeks preparing this TED Talk. I'm two minutes in it he says, “Stop.” He goes, “You've got to get rid of all of that except the video. I want you to do it completely differently. That's a terrible story. Don't tell that story.” He’s pounding on me and he’s turning to the audience and says, “This is terrible, isn't it?” These are my staff. They were like, “This is wrong. You should do this and this.” We spent four hours together and it was the best four hours ever. What it did was allow me to create this much simpler way of delivering the message than I ever had before. It's been my go-to message since then. It was brilliant. How many people get a one on one tutorial from Robert Kiyosaki on doing your presentation from the stage?
Dustin
I want to get into your gift, which is showing people how to get levels of tax-free wealth. One of the things I heard you say in the course that you're creating for us is, “Change your facts. Change your tax.” What do you mean by changing your facts? How can one change what is true?
Tom
The difference between whether something's deductible or not. People always come up to me and say, “Is this table deductible? Is this microphone deductible?”I’m going, “I don't know. It depends.” There's a better question and the question is, “How do I make it deductible?” That gets to the essence of the matter. How do I make something deductible? How do I make something beneficial to me tax-wise? I had two clients when I started out. The first one was a real estate developer. We go into a meeting one day with an attorney. This is about a deal that he's doing. The attorney is saying, “You can't do this.”We come out and he turns to me and he says, “Tom, there are two types of attorneys in the world. There are deal makers and deal breakers. What do you think this one is? This is a deal breaker.” I took that to heart because I'm going, “That's true with all advisors. They're deal makers and deal breakers.” The dealmakers always look at, “How do I make this happen?” I’ve never yet had a client who wanted me to tell them what they could not deduct.
The question always is, “What can I deduct?” I changed the question, which the real question is, “How can I deduct everything I have, everything I spend money on?”There are simple rules to deducting. It's got to be a business expense. It's got to be ordinary, necessary, and you've got to document it. The rules are clear in the case law. There's no Internal Revenue Code that says that it has to have a business purpose, ordinary, necessary and you have to document it. That's all in regulations, case law, etc. My job is to read all that stuff and distill it down so that my clients and the public can understand that this is how you make something deductible and it’s pretty simple.
Dustin
I want to talk a little home office. Many of us here at WealthFit have had businesses or have businesses. We've all heard, “Do not do the home office because it's going to raise that little old red flag and you don't want Big Brother looking at your stuff.” You have a different point of view. Will you share?
Tom
First of all, the home office is a deduction that is specifically identified in the law and there are specific rules on how to take it. This is not a gray area. It's black and white. You can take a home office if you meet these rules. You say, “I want to deduct my home office.”Meet the rules. The rules go like this and this. I cringe at the idea of an IRS audit. Let me tell our audience how to never fear an IRS audit, “I will never speak to the IRS.” You should not have to speak to the IRS. You hire professionals like me to do that. I have way more training than any IRS auditor. I have more time. I have more experience. I’ve read the law more. I’ve had more clients. I’ve had more clients than they've had audits. For me, it's a game. You see me get all excited about taxes because it's a game. It's my game. Think of yourself as a high school basketball player and you're going up against a college player. That's tough. There's a big difference between high school players and college players as a general rule, not all of them. You're going up this college player. Let's say you have a choice. You can go up against them or you can go hire LeBron James to go up for you. What would you do?
Dustin
I would go LeBron every time.
Tom
Yet here you are you're trying to hail your IRS audit on your own and you're not even a high school basketball player. You're a Saturday morning basketball player. You’re a weekend warrior and you're going up against this college player. That's all they are. They're not a professional player. They're a college player. What do you do? You go, “Let me bring in the big guns.” You can substitute in. It's called a power of attorney and you never have to talk to the IRS. You never have to worry about it. I shouldn't admit this, but IRS audits are fun because they're outgunned and they don't know it. My job is to make their job easier. I have enormous respect for IRS auditors. I tease a lot about IRS auditors, but the reality is they have one of the most difficult jobs in the world. What if you're in business and all your best customers hated you and never wanted to see you? That's what you're up against. It is a tough job. People don't want to see them. None of their customers want to see them. I respect them and I treat them well.
I had an IRS auditor once come to me and she’d done the audit for the business. One of the shareholders was my client, not the business. She told me she was auditing the business. The CPA handling the business was mean to her and made her cry. Can you imagine making an IRS auditor cry? I said, “You will not have that issue here. We will take good care.”By the end, she asked me to write her report for her because it was something she didn't understand. I understood it better. I took the time explained it to her. The rest of the story is the CPA who’d made her cry was my former partner. That’s the reason it was former because he had that effect on people. I treat them with respect. I know how to do that.
The reality is if an IRS auditor asked you a question, you can't say, “I don't know,” because you'll look bad. I can say, “I don't know. Let me ask my client.” It's much easier for me to deal with it. It's not emotional to me. It's a game to me. I'm a professional. It's much easier for me to handle than for a client. My number one advice is don't worry about IRS audits. Don't worry about, “It’s a red flag.” Your tax preparer should be your tax advisor and they should make it. First of all, they should be able to take your home office deduction without it being a red flag because there's no reason for it to be a red flag. It's only because of lazy tax preparers that it becomes a red flag. It's a legitimate deduction. Why would you not take it? If your tax return preparer or tax advisor is a friend of the IRS, you should say, “Next.”
Dustin
This was a rule a long time ago, this home office thing that has since been changed. The stigma still sticks around. Can you explain that a little bit?
Tom
What happened was there was a court case in the mid‘90s. The court allowed a doctor, who had a home office, to take home office deduction even though he made his rounds at the hospital. In 1997, they put that into the law. They changed the Internal Revenue Code and instead of relying on case law, they said, “IRS, you have to allow this,” and they put in specific rules. Since 1997, there's no reason for the home office to even be a red flag. It's a matter of how you report it on the tax return and you have options. Most people don't realize that not all tax preparers are created equal. A simple example, WealthFit is financial education. Let's say you do a seminar and somebody comes to your seminar. If they record a seminar on their tax return, that's a red flag. Let's say they’re a real estate investor. It's continuing education and you record as continuing education, not a red flag. That's a simple example but it's pretty easy if you know what you're doing.
Dustin
I want to go to the classic question that you must get and every other CPA, which is are you aggressive or are you conservative?
Tom
A lot of people say, “I want a more aggressive accountant.” What they're saying is, “I want an accountant who understands more of the law.”You've had Danica Patrick on the show. You put her out on the racetrack, she's fearless. You put me on the racetrack, I'm a hazard. That's a function of knowledge and experience. That's all that is. When I'm teaching, I use her as an example because here's the first woman to be a successful racecar driver. It's no big deal to her. For me, it's a big deal. I’ve been out on that racetrack, but not in a real race just a pretend one. It's pretty nerve-wracking. It's hard to do that. I appreciate professionals. The more education you have, the more experience you have, the more professional you can become. The more I know, the more I can be conservative. At the same time, do more for my clients. Aggressive means I'm out of my comfort zone. I don't want to do anything out of my comfort zone. I'm very conservative. I just do a lot more because I have a much bigger comfort zone.
Dustin
A lot of people use that question to gauge up their professional and it's not the right question to ask to gauge. Let's talk about the team because you're big on the team. I know people. The big questions they have are, “How do I find the right professional? How do I vet them? How do I know that they're good?” The one I truly want to get to is how do you lead this? It's one thing to hire somebody and abdicate and not check in, but to control your wealth you got to lead. How do we find them? Who first is on the team?
Tom
It’s simple. Who’s our team? You need a bunch of people on your team. You've got to have a good bookkeeper. You've got to have a good tax advisor. You've got to have a good attorney. You've got to have a good banker. You’ve got to have a good insurance agent. You have to have good property managers. There are all these different people you need on your team. I wrote a whole chapter of it in my book, Chapter 23, about how to find the right tax advisor. When I was writing the book, Robert Kiyosaki said, “Would you please put in the top ten questions that you need to ask when you're interviewing a tax advisor?” I said, “I'm happy to do that.” Let me explain them. The questions you ask them are not nearly as important as the questions they ask you. The job of an advisor is to ask good questions. If you go to the doctor and your stomach hurts. What does the doctor spend all the time doing? Asking questions to diagnose what's the solution. If your advisor is not diagnosing and finding out what's the solution, how can they possibly know what the solution is? We can pretty easily judge whether it's a good question or a bad question.
People say there's no stupid question. There are lots of stupid questions. I ask them all the time, “I’ve got $10,000 worth of hours. How should I invest it?” That's a stupid question. A better question is, “How do I become a professional investor?”It's the soup question. There's an old movie, Finding Forrester. The mentor is teaching the young athlete who’s a writer. The mentor is a Pulitzer Prize-winning author. This young guy says, “Why don't you write anymore?”He says, “That’s a dumb question.”One day he says, “How come your soup has a skin on it and mine doesn't?”The mentor, played by Sean Connery, says, “That's a good question and it’s simple. I put milk in my soup. Your mother didn't have the money to put milk in her soup. That's why it's a film on it.” What you're asking is, “Why?” To me, the why and how questions are the best questions. How can I make this deductible? How can I turn my children into assets? How can I lower my tax rate? How can I and then why or why not? Why does it work this way? Why doesn't it work this way? If you understand those things, then life is easy.
Dustin
I don't think a lot of people hear this. I didn't realize this. You talk about tax brackets. Many people have heard this and those that make a lot of money in a higher tax bracket. One of the strategies was you can change or you can move your tax bracket especially if you have kids, and interestingly enough if you have parents. Will you share? Give a little inside baseball on what you mean here.
Tom
Most people don't understand tax brackets. Suffice it to say that the highest tax bracket is 37% in the US and the lowest is zero. First, $12,000 is zero, that's your tax bracket. It goes up 10% and 12% until you get to 37%.Everybody has all of those brackets. People think, “If I get this bonus it pushes me to high brackets. Now, all of my income is taxed in that bracket.”No, it's the extra income that’s taxed in that bracket. Which means the last dollar you earn is taxed at your highest bracket, and the first deduction you get is deducted at your highest bracket. That's an important distinction because if you can deduct money and move it to somebody who only has a lower bracket, that's a permanent tax saving. The people that are most obvious are your children because all children have a $12,000 zero tax bracket. You have to pay them. They have to work in your business or your investments to do it. If you do, you can deduct the money and so you're deducting at 37%. They're paying tax at0%.
People will say, “I don't have children.” Do you have elderly parents that you're taking care of?“Yes, I do.” You can do the same thing with them because they also have tax brackets. Everybody's got a tax bracket. It's not that hard. With the right advice, the right financial education, it's not that hard to make serious dents. I'm in South Africa talking about this little planning strategy of paying your kids. I'd make sure that it was legal first of all in South Africa and sure enough. I talk about this on stage. This guy says, “You saved me $70,000.”That's $5,000. He's like, “I can't believe you saved me all this money. I can do that.”I’m going, “It's that simple. It's not that hard.”
Dustin
You speak all around the world and you’re giving strategies and they’re like, “Tom, this is great. I love this stuff but it won't work here. This doesn't work in my market.”
Tom
People say, “You can't do this here,” and my answer is, “You can't do it here.” The reality is there are people doing this here. Let me give a story. Robert and I are in Moscow, Russia. We’re invited to this dinner by the sponsors of the event. There are ten top-notch business owners in Moscow and we end up talking about taxes. The story is in Russia, you ask a Russian about laws and they said, “Laws are just suggestions. That’s the idea.” These guys are saying, “We’re paying employees some over the table, some under the table because that's what we have to do.” We get to the one who's the wealthiest guy in the room. He said, “I don't have any employees. I have independent contractors.” In independent contractors, we don't have that issue. What he's done is he's followed the rules. He's obeying the law and he pays no tax while they're paying tax on 70% of the income. He's paying tax on none of it because he's figured out what the rules are. It doesn't matter if you're in Moscow. He was doing it there and the others weren't. You come up and say, “You can't do this here.” Let's correct that when you point a finger, you've got three pointing back at you and, “You can't do that here. Would you like to learn how to do it here?” It's a matter of being open and willing to learn.
Dustin
That's the power of education. That's why we do what we do. I want to move us into a WealthFit Round, which essentially is rapid fire. What's your most worthwhile investment?
Tom
My business without question. I control it. I'm in-charge. My return on investment is way higher than any other investment. I put no money into it whatsoever. I have a team that does all the work. I get to do what I want to do and only what I want to do.
Dustin
What's that investment you don't want to talk about? What's that misstep?
Tom
I made many of them. I can't even count that high. Here's the big one. 2007 we go to refinance our properties. We had a fairly sizable portfolio in 2007. My property manager comes back to me and he says, “The market softened a little bit. We can't get as much as I thought.” In hindsight, that was the trigger point and we should have sold it all. The market’s softening. It’s starting to come down. It’s time to sell. I was caught up like everybody else. I believed the ridiculous idea that real estate never comes down. Every sixteen years it comes down. That's the rule. Real estate has a sixteen-year cycle. You can look at it over the over the ages. It's going to come down. When did it last come down? It came down in 1990. 2008, we're overdue. There’s your sixteen-year cycle. That was painful.
Dustin
When life is not painful and life is great, the market corrects and you're on top of the world. What's that guilty spending splurge? What do you like to treat yourself to?
Tom
I love shopping for clothes. San Francisco, Nordstrom's. If I'm down in San Francisco, my son lives down the Bay Area. My wife’s son lives in the Bay Area as well. We go to San Francisco, I can count. I can depend that I'm going to dump at least $5,000 on that trip.
Dustin
I’ve got a sideline question. Usually, I don't do this in WealthFit Round. I like some nice clothes too because you are a professional speaker. Can you write some of this off or is that a little slippery?
Tom
It's not slippery at all. It's pretty black and white. If it's a uniform, you can write it off. If I were to put on my expensive handmade suit my company, WealthAbility, it would be a write-off. You had to put your logo on it. I bought this jacket in Australia and paid a lot. I never spent so much money on a single jacket. Somebody’s asked me about deducting it, I said, “Yes, I just need to put the WealthAbility logo.” This woman turns to me and she goes, “I beg you, do not do that to that jacket.” It can be deductible but there's a price to pay.
Dustin
Any special routines, rituals or things that you do to get yourself in a state, start your day or end your day? Do you have any special things you do?
Tom
My wife and I, our mornings together are precious. We get up about 4:00 or 5:00 every morning. We’re morning people. My wife is a coffee drinker. She loves her coffee. I prepare it the night before because otherwise if I don't get up fast enough, she will make it and then it's called coffee of desperation. It’s not good. I make coffee of love and she makes coffee of desperation. We get up. We have our cup of coffee and literally, we're reading the news. We're talking about probably tax stuff because we're both nerdy about that. She goes and does yoga and I go workout. There is a time we were doing yoga together and I decided I'd rather run or swim or bike. Yoga is amazing. Your concentration goes up so much with yoga and your breathing gets better, your heart rate goes down. I'm a huge believer. It's finding the time to do that and the running. I read a quote that says, “I don't run to add days to my life. I run to add life to my days.” I particularly am a swimmer. I have a 25-meter pool in my backyard. It’s heated during the winter. It's cooled during the summer because I live in Arizona and it's too hot in the summer. That physical exercise is a big deal to me. It's coffee, tax and exercise in that order.
Dustin
You're incredibly successful. You speak. You fly around the world. You’re running a firm or practice. What have you gotten better at saying no to in the last couple of years?
Tom
I have such a hard time saying no. I will pretty much do anything for approval. That's my secret weakness. Saying no is hard for me. Saying no to stuff that's not a value is big. I run two different businesses plus any other investment I do. Plus, I’ve got grandchildren plus I’ve got children. Plus, I'm traveling with Robert all over the world. My time is my most precious asset and it's the one we can never get back. I learn to say no to a lot more things. The one thing I’ve not been good at saying no to is PR. PR is the lifeblood of a business. You’ve got to do it.
Dustin
Fear, self-doubt often prevent people from being their best self. What do you do when you enter a new area and maybe feel a little anxiety or a little extra heartbeat? What do you do to overcome that?
Tom
I love partners. I love partnering with people and I’ve had some bad partners. I can count three bad partners. I have two good partners. There's nothing worse than a bad partner and nothing better than a good partner. What happens is that if I'm not good at something, I need somebody who is. What I do is I say, “Help me understand how to do this. The reality is if I can't, I'm going to have you do it,” because I'm not a big believer in overcoming weakness. I’m a big believer in focusing on your strength because we all have weaknesses. Why spend the time on the negative when you can spend the time on the positive? My goal in life is to only do those things that nobody else can do, and that I'm the only person suitable for them. I'm constantly looking at, “How do I bring in people that can do things that in the past I’ve been the only person do it, but maybe I don't have to be?”That includes speaking. That includes PR. That includes marketing. That includes all these other things. I become a master delegator. Probably my greatest strength is delegation. It's a hard thing to do for somebody who's a straight-A student.
Dustin
How do you get better? Who do you learn from? How do you get better? Who are your mentors?
Tom
I learn from everybody. I learned now. Teaching is my favorite way of getting better because you learn so much when you teach. We were in the studio. You go, “That's a subtle smile.” I'm going, “I just invented that,” and it's a great diagram. I drew that diagram going, “I have to remember that. That is good.” I learn when I say something. That's when I learn is when I'm saying it. A lot of my best innovation is through teaching.
Dustin
Tom, thank you big time for being on the show. I'm super excited for your courses. For those that enjoy this and they got to go check you out and want to continue up with the conversation. What's the best way for them to do that?
Tom
Our website’sWealthAbility.com or you can listen to The WealthAbility Show with Tom Wheelwright. That's my podcast. The response has blown me away. I get comments every week from people writing in or talking to me. I interviewed a new staff member and he starts rattling off all these podcasts that he listened to and I'm going, “I get he was preparing for an interview. At the same time, he was sincere about this is such good stuff that nobody's ever said before. We all have people that only we can touch. It is our obligation to speak our minds. Our friend, Robert, is good at speaking his mind, sometimes to the detriment. The reality is he's good at that and he's been a great example. You asked how I learned and he's one of my greatest mentors. My wife is a phenomenal person and she's calm yoga. She's the opposite of me. I get excited and she says, “You've got a lot of energy there, Tom,” and I do and that's great. She's got a lot of calm. It's great to have a team like that.
Dustin
Tom, I appreciate you being on the show. I'm excited to be on the journey with you.
Tom
Thanks, Dustin.

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